The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 4, No. 2, February 2016
Corporate Social Responsibility and
Firm Performance:
An Empirical Research on Banking
Industry of Bangladesh
Tahmina Ahmed*
*Lecturer, Department of Accounting & Information Systems, University of Dhaka, BANGLADESH. E-Mail: tahmina{at}du{dot}ac{dot}bd
Abstract—In today’s competitive business environment, it is impossible to survive for the organizations which
concentrate only on profit. As businesses are social entities, they have to go beyond ensuring profit and serve
those who directly or indirectly get benefited or worsened by the organizations. Hence, publicly traded
companies tend to perform Corporate Social Responsibility (CSR) and report this information. This paper
investigates whether CSR amount reported in annual reports of companies has any significance as far as
profitability and valuation of those companies are concerned. Linear regression analysis of three models under
study incorporate five years’ data of 30 listed banking companies, the results of which reveal that CSR has no
significant impact on neither the profitability nor the share price of the banking industry of Bangladesh.
Therefore, the notion that supports CSR’s correlation with profitability, firm performance, and stock
performance does not hold true in Bangladesh.
Keywords—Bangladesh; Banks; Corporate Social Responsibility; Firm Performance.
Abbreviations—Corporate Social Responsibility (CSR); Earnings Per Share (EPS); Gross Domestic Product
(GDP); Market Value of Shares (MVS); Return on Assets (ROA); Return on Equity (ROE).
I.
T
INTRODUCTION
HE idea of corporate social responsibility was
developed in the early 1930’s; however, in
Bangladesh, the field of corporate social responsibility
has grown exponentially in last few years that can be seen
from the reported CSR amounts expended by the publicly
listed companies in the stock exchanges of Bangladesh.
Corporate social responsibility has been defined by Business
for Social Responsibility as ―achieving commercial success
in ways that honor ethical values and respect people,
communities, and the natural environment.‖ The simplest and
perhaps one of the earliest definitions of CSR given by
Frooman [7] says ―An action by a firm, which the firm
chooses to take, that substantially affects an identifiable
social stakeholder’s welfare.‖ CSR is commonly viewed as a
broad policy of a company that, apart from business
activities, relate to ethics, community development,
environmental concerns, governance, human resource
development, and the benefit of the whole society as well as
the workplace where society includes, total business
environment including the government, legal authorities,
customers, stakeholders, investors, creditors, share holders
ISSN: 2321-242X
and even the competitors. CSR has been studied and
associated with business organizations by many researchers
and academicians in different ways. Some have associated
financial performance with Corporate Social Responsibility,
whereas, some have discussed the dimensions of this CSR.
Being a developing nation with its GDP (Gross Domestic
Product) growth of above six percent a year, Bangladesh is in
the midst of attracting investors within the country and also
from abroad to enhance its economic growth now more than
ever before. Banks are the part and parcel of this progress.
The banking industry is considered one of the largest
business industries that consist of five state owned banks,
thirty-nine local private commercial banks, nine foreign
banks and three specialized banks. Besides, the industry
dominates in the secondary market with its thirty enlisted
banks in the stock exchanges.
The banking companies are the largest contributor in the
society in terms of performing CSR activities. As per the
Review of CSR activities of Bangladesh Bank, published on
June, 2015, total annual direct CSR expenditure by banks in
2014 increased by Tk. 633.97 million from 2013, when CSR
expended totaled Tk. 4471.49 million. Although there are
several studies on the CSR activities of banks in Bangladesh,
© 2016 | Published by The Standard International Journals (The SIJ)
39
The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 4, No. 2, February 2016
most of the studies highlight the disclosure pattern of CSR
that contributed towards indexing of CSR disclosure. Unlike
other studies, this particular study examines whether the
amount of the total CSR spent on a year by the banks has
significant relation with the financial performance in the
following year. To be specific, the research objectives
include:
1. To identify whether CSR influences organizational
performance in terms of profitability
2. To identify whether CSR influences the market value
of the firm’s share.
II.
LITERATURE REVIEW
According to Friedman [6], in a free society, ―there is one
and only one social responsibility of business—to use its
resources and engage in activities designed to increase its
profits so long as it stays within the rules of the game, which
is to say, engages in open and free competition without
deception or fraud.‖ He urges that business entities address
social problems because they take money and resource that
otherwise go to owners, employees, and costumers. He also
suggests businesses distribute money to the minority. Without
profit it is impossible for business organizations to exist.
Today’s organizations behave to ensure not only return to
shareholders, wage to employees, and outputs to customers,
but also value to the society [Solihin, 21].
It is ironic that just as the society gets benefited from
CSR done by businesses, the organizations get benefited as
well. According to Margolis & Walsh [13], there have been
one hundred twenty-two published studies between 1971 and
2001 that examined the relationship between corporate social
responsibility and financial performance. While, Wright &
Ferris [28] discovered a negative relationship; Posnikoff [18]
reported a positive relationship. On the other hand, Welch
and Wazzan (1999) found no relationship between CSR and
financial performance. Inconsistent results were also seen in
the findings of McWilliams and Siegel (1997) so far as the
relationship between CSR and short run financial returns is
concerned. However, long term financial performance has
been found to be related with CSR in different studies. One of
the early studies of this issue was of Cochran & Wood [5]
who found positive correlation between social responsibility
and accounting performance after controlling for the age of
assets. One of the earliest literatures focusing on profit
enhancing role of CSR was by Sturdivant & Ginter [22] who
argued that social responsibilities have a positive impact on
companies’ Earnings Per Share (EPS). Vance [24] compared
14 firms and his findings suggest similar correlation. Sandra
A. Waddock & Samuel B. Graves [26], on the other hand,
found significant positive relationships between an index of
Corporate Social Performance and performance measures,
such as ROA in the following year. Recent studies like that of
Becchetti et al., [3], Van der Laan et al. [25], and Lindgreen
et al., [12] also suggest that financial performance in terms of
ROA, ROE, Sales growth rate, Leverage, Firms value etc
have a positive relation with CSR.
ISSN: 2321-242X
There exist opposite views as well. Negative correlation
of CSR and profitability has been defended by Friedman [6]
and other neoclassical economists who believe that socially
responsible firms have a competitive disadvantage [Aupperle
et al., 1], because they incur costs that fall directly upon the
bottom line and reduce profits. On the other hand, Ullmann &
Arieh [29] thinks that there are so many variables that
influence CSR and profitability that a relationship should not
be expected to exist. In 2007, a survey by Tamoi Janggu et
al., [23] was conducted to find out the level of CSR of
industrial companies in Malaysia and it was found that CSR
has positive relation with the firm profitability however the
relation was found to be weak. Another finding of Saleh et
al., [20] suggests a similar conclusion as they did not find any
significant relationship between CSR and financial
performance.
There lies problem in measurement of CSR and other
parameters of the investigations. In some cases, subjective
measures were used. In other cases, researchers employ
official corporate disclosures—mainly annual reports.
Despite the popularity of these sources, there is no way to
determine empirically whether the social performance data
revealed by corporations are under-reported or over-reported.
Thus, information about corporate social performance is open
to questions about management bias- Heinze [8]; Herremans
et al., [9]; McGuire et al., [14]; Moskowitz [15]; Preston &
O’Bannon [19]. Thus, although many researchers [Aupperle
et al., 1; Mulyadi & Anwar, 16; Nelling & Webb, 17; Stephen
L. Wartick & Phillip L. Cochran. 27; Ullmann & Arieh, 29]
tried to propose conceptual frameworks for a causal
relationship between CSR and Corporate Profit, they failed to
do so.
Most of the researches on CSR have been centered on
developed economies. The studies in Bangladesh mainly
concerns the disclosure checklist related to CSR. Imam [10]
says, CSR is generally being neglected [Imam, 10] in
Bangladesh. However, there is considerable effort of
companies to act sensibly and be responsible towards society
and political & ecological environments [Azim et al., 2].
Belal [4] argued that, the banking sector needs to be more
socially responsible because stakeholders have increasing
demand for it. Also, it has been found in one research of
Kabir [11] that CSR enhances the status of an organization,
and improves stakeholder return.
III.
RESEARCH HYPOTHESES
The following three null hypotheses have been set for
examination in order to test the impact of CSR on firm
performance.
H1: The amount spent on Corporate Social Responsibility
(CSR) at year t has no significant impact on the ROE of year
t+1
H2: The amount spent on Corporate Social Responsibility
(CSR) at year t has no significant impact on the ROA of year
t+1
© 2016 | Published by The Standard International Journals (The SIJ)
40
The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 4, No. 2, February 2016
H3: The amount spent on Corporate Social Responsibility
(CSR) at year t has no significant impact on the Average
Market Value of Share of year t+1
IV.
RESEARCH METHODOLOGY
4.1. Sample Design
For the purpose of this study, all the listed Banking
Companies of Bangladesh have been selected. Besides, four
years data of CSR from 2009 to 2012 and four years data of
ROE, ROA, and average Market Value of Shares (MVS)
from 2010 to 2013 have been gathered. Therefore, the
population taken for study is 30 banks listed in Dhaka Stock
Exchange. However, because 10 banks started reporting CSR
after 2009, and one bank had continuous loss (negative
values) for four years under study and thus was considered
outlier, the firm year tested becomes 106.
4.2. Model Specification
This study examines the impact of Corporate Social
Responsibility on the financial performance of the firms as
well as market performance. It employs econometric method
in formulating regression models which would be analyzed
through the use of ordinary least square regression model. For
the analysis, the following three models have been designed:
M1: ROE = b0 + b1CSR + u
M2: ROA = b0 + b1CSR + u
M2: MVS = b0 + b1CSR + u
Where:
ROE= Return on Equity of year t+1
ROA= Return on Asset of year t+1
MVS= Average Market Value of Share of year t+1
CSR = Corporate Social Responsibility amount
reported in the annual report of year t
b0, b1 = Parameter of the Estimate
U = Error term
The R value (.019) represents the simple correlation
between the dependent variable, ROE and the Independent
variable CSR. The result indicates that there is a very low or
no correlation between these two variables. The R2 value (the
"R Square" column) indicates how much of the total variation
in the dependent variable, ROE, can be explained by the
independent variable, CSR. In this case, R2 designates that
change in ROE cannot be explained by change in CSR data.
Table 2: ANOVA Results for M1
Sum of Squares df Mean Square
Model
1
Regression
.000
1
.000
Residual
.752
104
.007
Total
.753
105
Table 3: Model Summary for M2
Model
R
R2
Adjusted R2
Std. Error of
the Estimate
1
.053
.003
-.007
.0089962
Table 4: ANOVA Results for M2
Model
Sum of Squares df
1 Residual
To find out whether the null hypotheses shall be accepted or
not, we conducted a linear regression test, in which the
significance level of .05 is used. The analysis was done with
the help of statistical software SPSS 17.
V.
RESULT DISCUSSION
The regression test output after the values were put into
examination can be found in the following tables.
Table 1: Model Summary for M1
Sig.
It is evident from the significance column of Table 2
(Sig= .844) that the value is greater than .05 suggesting that
the regression model does not significantly predict the
outcome of the variable, CSR as far as its impact on ROE is
concerned.
If we look at the test results of Model 2 in Table 3 and
Table 4, the results show that the correlation between CSR
and ROA is also not significant as R value is only .053. The
R2 also tells us that only .3% change in ROA can be
explained by change in CSR.
Regression
4.3. Data Analysis
F
.039 .844
Total
Mean
Square
.000
1
.000
.008
104
.000
.008
105
F
Sig.
.295 .588
From Table 4, it can be seen that the relation between
CSR and ROA is not significant (.588). Similarly, if we look
into the tables, Table 5 and Table 6, we find that, there is a
very low or no correlation between CSR and Market value of
shares as R value is only .128. Also, change in the
independent variable denoted by R2, which is equal to 1.6%,
does not cause significant change in MVS, Market value of
share of a firm.
Table 5: Model Summary for M3
Model
1
R
R2
.019 .000
ISSN: 2321-242X
Adjusted R2
-.009
Std. Error of the Estimate
Model
R
R2
Adjusted R2
Std. Error of
the Estimate
1
.128
.016
.006
40.14188
.0850564
© 2016 | Published by The Standard International Journals (The SIJ)
41
The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 4, No. 2, February 2016
Table 6: ANOVA Results for M3
Sum of Squares df Mean Square
Model
1
Regression
2488.622
1
2488.622
Residual
149857.422
93
1611.370
Total
152346.045
94
[6]
F
Sig.
1.544 .217
Table 6 constitutes the test result for model 3. The results
show that the CSR amount reported in annual reports does
not statistically significantly influence Average Market Price
of Shares next year. Moreover, as Significance value in the
table is equal to .217, the regression relation is considered
insignificant.
VI.
CONCLUDING REMARKS
Two contrasting pools of studies exist regarding the impact of
Corporate Social Responsibility on firm performance. While
some support the notion that CSR have significant impact on
Earnings Per Share, Return on Equity, Return on ROA, Sales
Growth, Stock Price and etc. of a firm, opposite views subsist
that are supported by different studies. This study, directed
towards finding significance of reported CSR on firm
performance next year, finds that CSR has no significant
impact on ROE, ROA, and average market value of shares of
banking industry of Bangladesh. All three hypotheses hold
true after the regression models have been run and therefore,
I accept the null hypotheses and conclude that there is no
significant relation of CSR reported and firm performance in
terms of profitability and stock performance. The findings
suggest that, in Bangladesh, CSR activity is still not
considered a growth factor and thus does not reflect in a
company’s operation, its bottom line profit or valuation of
shares. However, as literature highlights that despite the
popularity of annual reports in testing data, there is no way to
determine empirically whether the social performance data
revealed by corporations are under-reported or over-reported,
the results found under this study may be subject to
management bias.
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
REFERENCES
[1]
[2]
[3]
[4]
[5]
Aupperle, Kenneth E., Archie B. Carroll & John D. Hatfield
(1985), ―An Empirical Investigation of the Relationship
between Corporate Social Responsibility and Profitability‖,
Academy of Management Journal.
M. Azim, A. Ezaz & D. Brian (2011), ―Corporate Social
Disclosure in Bangladesh: A Study of the Financial Sector‖,
International Review of Business Research Papers, Vol. 72, Pp.
37–55.
L. Becchetti, S.D. Giacomo & D. Pinnacchio (2008),
―Corporate Social Responsibility and Corporate Performance:
Evidence from a Panel of US Listed Companies‖, Applied
Economics.
A.R. Belal (2001), ―A Study of Corporate Social Disclosures in
Bangladesh‖, Managerial Auditing Journal, Vol. 16, Pp. 274–
289.
P.L. Cochran & R.A. Wood (1984), ―Corporate Social
Responsibility and Financial Performance‖, Academy of
Management Journal, Vol. 27, No. 1, Pp. 42–56.
ISSN: 2321-242X
[21]
[22]
[23]
[24]
[25]
M. Friedman (1970), ―The Social Responsibility of Business is
to Increase its Profits‖, New York Times Magazine, Pp. 32–33,
122, 124, 126.
J. Frooman (1997), ―Socially Irresponsible and Illegal Behavior
and Shareholder Wealth: A Meta-analysis of Event Studies‖,
Business and Society, Vol. 36, Pp. 221–249.
D.C. Heinze (1976), ―Financial Correlates of a Social
Involvement Measure‖, Akron Business and Economic Review,
Vol. 7, No. 1, Pp. 48–51.
I.M. Herremans, P. Akathaporn & McInnes (1993), ―An
Investigation of Corporate Social Responsibility Reputation
and Economic Performance‖, Academy of Management
Journal, Vol. 31, No. 4, Pp. 854–872.
S. Imam (2000). ―Corporate Social Performance Reporting in
Bangladesh‖, Managerial Auditing Journal, Vol. 15, Pp. 133–
141.
E. Kabir (2003), ―Corporate Social Responsibility in
Bangladesh‖, The Financial Express of Bangladesh.
A. Lindgren, V. Swaen & W. Johnston (2009), ―The
Supporting Function of Marketing in Corporate Social
Responsibility‖, Corporate Reputation Review, Vol. 12, Pp.
120–139.
J.D. Margolis & J.P. Walsh (2003), ―Misery Loves Companies:
Rethinking Social Initiatives by Business‖, Administrative
Science Quarterly.
J.B. McGuire, A. Sundgren & T. Schneeweis (1988),
―Corporate Social Responsibility and Firm Financial
Performance‖, Academy of Management Journal, Vol. 31, No.
4, Pp. 854–872.
M. Moskowitz (1972). ―Choosing Socially Responsible Stock‖,
Business and Society.
M.S. Mulyadi & Y. Anwar (2011), ―Investor’s Perception on
Corporate Responsibility of Indonesian Listed Companies‖,
African Journal of Business Management.
E. Nelling & E. Webb (2009), ―Corporate Social Responsibility
and Financial Performance: The ―Virtuous Circle‖ Revisited‖,
Review of Quantitative Finance and Accounting.
J. Posnikoff (1997), ―Disinvestment from South Africa: They
did Well by doing Good‖, Contemporary Economic Policy,
Vol. 15, Pp. 76–86.
L.E. Preston & P. O’Bannon (1997), ―The corporate SocialFinancial Performance Relationship‖, Business and Society,
Vol. 36, No. 4, Pp. 419–429.
M. Saleh, N. Zulkifli & R. Muhamad (2008), ―An Empirical
Examination of the Relationship between Corporate Social
Responsibility Disclosure and Financial Performance in an
Emerging Market‖, International Journal of Productivity and
Performance Management.
I. Solihin (2009), ―Corporate Social Responsibility: From
Charity to Sustainability”, Jakarta: Salemba Empat.
F.D. Sturdivant & J.L. Ginter (1977), ―Corporate Social
Responsiveness-Management
Attitude
and
Economic
Performance‖, California Management Review, Vol. 19, No. 3,
Pp. 30–39.
Tamoi Janggu, Corina Joseph & Nero Madi (2007), ―The
Current State of Corporate Social Responsibility among
Industrial Companies in Malaysia‖, Social Responsibility
Journal.
S.C. Vance (1975), ―Are Socially Responsible Corporations
Good Investment Risks?‖ Management Review, Vol. 64, Pp.
18–24.
G. Van der Laan, H. van Ees & A. van Witteloostuijn (2008),
―Corporate Social and Financial Performance: An Extended
Stakeholder Theory, and Empirical Test with Accounting
Measures‖, Journal of Business Ethics, Vol. 79, No. 3, Pp.
299–310.
© 2016 | Published by The Standard International Journals (The SIJ)
42
The SIJ Transactions on Industrial, Financial & Business Management (IFBM), Vol. 4, No. 2, February 2016
[26]
[27]
[28]
[29]
Sandra A. Waddock & Samuel B. Graves (1997), ―The
Corporate Social Performance Financial Performance Link‖,
Strategic Management Journal.
Stephen L. Wartick & Phillip L. Cochran (1985), ―The
Evolution of the Corporate Social Performance Model‖,
Academy of Management Review.
P. Wright & S. Ferris (1997), ―Agency Conflict and Corporate
Strategy: The Effect of Divestment on Corporate Value‖,
Strategic Management Journal, Vol. 18, Pp. 77–83.
Ullmann & Arieh (1985), ―Data in Search of a Theory: A
Critical Examination of the Relationship among Social
Performance, Social Disclosure, and Economic Performance‖,
Academy of Management Review.
ISSN: 2321-242X
Tahmina Ahmed has been teaching
Accounting in University of Dhaka for last
two years. Previously she worked as a
Lecturer of Accounting in Bangladesh
University of Engineering & Technology
(BUET) for a year. Tahmina completed BBA
and MBA, both majoring in Accounting,
from University of Dhaka as a topper of the
batch and consequently received Dean’s
Merit Award, Dean’s Honor Award, and Prime Minister’s Gold
Medal. She is planning to pursue her PhD in one of the top tier
Business Schools in the world next year. Her research interest
includes Voluntary Reporting, Reporting Quality, Earnings
Management, and Corporate Frauds. She has published 3 articles on
Human Capital Reporting, Corporate Social Responsibility, and
Financial Scandals in Banks respectively. Tahmina participated in
two international Conferences, one in South Korea and the other one
in UAE.
© 2016 | Published by The Standard International Journals (The SIJ)
43